Seagate Technology Reports Fiscal Fourth Quarter And Year-End 2008 Results

2008-07-15 00:00:00.0

Seagate Technology (NYSE: STX) today reported disc drive unit shipments of approximately 43 million, revenue of $2.9 billion, GAAP net income of $160 million, and diluted net income per share of $0.32 for the quarter ended June 27, 2008. GAAP net income and diluted net income per share includes approximately $23 million of purchased intangibles amortization and other charges associated with Seagate’s recent acquisitions. Excluding these items, non-GAAP net income and diluted net income per share were $183 million and $0.37, respectively. Included in both GAAP and non-GAAP results are restructuring charges of approximately $36 million or approximately $0.07 per share.

For the twelve months ended June 27, 2008, Seagate reported revenue of $12.7 billion, GAAP net income of $1.3 billion, and diluted net income per share of $2.36. GAAP net income and diluted net income per share includes approximately $113 million of purchased intangibles amortization and other charges associated with Seagate’s recent acquisitions and also a net gain from asset sales of approximately $19 million. Excluding these items, non-GAAP net income and diluted net income per share were $1.4 billion and $2.54, respectively. Included in both GAAP and non-GAAP results are restructuring and other charges of approximately $88 million or approximately $0.16 per share.

"We delivered strong growth in fiscal year 2008, with unit volume and revenue up 15% and 12%, respectively over fiscal year 2007, and with net income of $1.3 billion," said Bill Watkins, Seagate chief executive officer. "Sequentially, our market-leading share positions remained unchanged in the enterprise and desktop markets, we grew our leading share position in the consumer electronics market, and we grew share in the notebook and retail markets. Were it not for some product execution issues in the notebook and nearline markets, we believe we would have delivered an even stronger quarter and year, with improved share positions. We have now made significant strides in reclaiming our product leadership in these areas. While we expect that the residual effects of the previously missed execution will be reflected in the first quarter, we believe that we will grow revenue and improve earnings throughout the remainder of FY2009."

A reconciliation of adjustments made to GAAP net income and diluted net income per share can be found following the financial statements included with this press release. Additional information relating to the financial results for the fourth fiscal quarter of 2008 can be found online at seagate.com.

Business Outlook
For the September quarter, Seagate expects to report revenue of $3.15 - $3.3 billion, and GAAP diluted net income per share of $0.18 - $0.22. Adjusting for approximately $20 million of purchased intangibles amortization and other charges associated with past closed acquisitions, non-GAAP diluted net income per share for the September quarter is expected to fall within the range of $0.22 - $0.26. The GAAP and non-GAAP outlook for the September quarter does not include restructuring costs or accelerated depreciation charges relating to the previously announced closing of our substrate operations in Limavady and the finished media operations in Milpitas. Additionally, the outlook does not include the impact of any future acquisitions, stock repurchases or potential restructuring activities the company may undertake during the quarter.

For fiscal 2009, Seagate believes the demand trends for storage continue to support healthy industry unit growth of 10-15% and industry revenue growth of 5-10%. Specific to Seagate, the company is confident that its performance relative to time-to-market, inventory management and its overall cost structure will improve as it executes the plans that are currently in place. Financial performance improvement will be incremental as the company implements numerous changes across the business during the first half of the fiscal year. As such, Seagate expects gross margins to begin improving with the December quarter and settle into the targeted range of 21-25% for the balance of the fiscal year.  

Dividend and Stock Repurchase
The company has declared a quarterly dividend of $0.12 per share to be paid on or before August 15, 2008 to all common shareholders of record as of August 1, 2008.

During the quarter ended June 27, 2008 the company purchased, under a 10b5-1 qualified stock repurchase plan, 9.1 million of its common shares at an average cost of $21.36. The company has authorization to purchase approximately $2.0 billion of additional shares under the current stock repurchase program.

Conference Call

Seagate will hold a conference call to review the fiscal fourth quarter and year-end results at 2:00 p.m. Pacific Time today. The conference call can be accessed online at seagate.com or by phone as follows:

USA: (877) 223-6202
International: (706) 679-3742
Conference ID: 53915411

Replay
A replay will be available beginning today at 6:00 p.m. Pacific Time through July 22 at 8:59 p.m. Pacific Time. The replay can be accessed from seagate.com/investors or by phone as follows:

USA: (800) 642-1687
International: (706) 645-9291
Conference ID: 53915411

About Seagate
Seagate is the worldwide leader in the design, manufacture and marketing of hard disc drives and storage solutions, providing products for a wide-range of applications, including Enterprise, Desktop, Mobile Computing, Consumer Electronics and Branded Solutions. Seagate's business model leverages technology leadership and world-class manufacturing to deliver industry-leading innovation and quality to its global customers, with the goal of being the time-to-market leader in all markets in which it participates. The company is committed to providing award-winning products, customer support and reliability to meet the world's growing demand for information storage. Seagate can be found around the globe and at http://www.seagate.com.

Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements related to the company’s future operating and financial performance, including expected revenue, net income and diluted earnings per share (presented on a GAAP basis as well as on a non-GAAP adjusted basis), price and product competition, customer demand for our products, and general market conditions. These forward-looking statements are based on information available to Seagate as of the date of this press release. Current expectations, forecasts and assumptions involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the company's control. In particular, such risks and uncertainties include the impact of the variable demand and the aggressive pricing environment for disc drives, particularly in view of current economic conditions; dependence on Seagate’s ability to successfully qualify, manufacture and sell its disc drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disc drive products with lower cost structures; the impact of competitive product announcements and possible excess industry supply with respect to particular disc drive products; our ability to achieve projected cost savings in connection with our announced restructuring plans; and market conditions and alternative cash imperatives which could impact our ability to repurchase stock. Information concerning risk, uncertainties and other factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the company's Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission on August 27, 2007 and in the company's Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on April 29, 2008, which statements are incorporated into this press release by reference. These forward-looking statements should not be relied upon as representing the company's views as of any subsequent date and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

#  #  #

 

Seagate Technology
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)

 
June 27,
2008
   
June 29,
2007(a)
Assets        
Cash and cash equivalents
$
990
 
$
988
  Short-term investments
151
 
156
 
  Accounts receivable, net
1,410
 
1,383
 
  Inventories
945
 
794
 
  Deferred income taxes
274
196
 
  Other current assets
502
 
284
 
   
 
  Total Current Assets
4,272
 
3,801
 
               
Property, equipment and leasehold improvements, net
2,464
 
2,278
 
  Goodwill
2,352
 
2,300
 
  Other intangible assets
111
 
188
 
  Deferred income taxes
616
574
 
  Other assets, net
305
 
331
 
   
 
  Total Assets
$
10,120
   
$
9,472
 
Liabilities and Shareholders' Equity        
  Accounts payable
$
1,652
   
$
1,301
 
  Accrued employee compensation
440
 
157
 
  Accrued expenses, other
825
 
786
 
  Accrued income taxes
10
 
75
 
  Current portion of long-term debt
360
 
330
 
   
 
  Total Current Liabilities
3,287
 
2,649
 
         
  Other non-current liabilities
367
 
353
 
  Long-term accrued income taxes
210
   
  Long-term debt, less current portion
1,670
 
1,733
 
   
 
  Total Liabilities
5,534
 
4,735
 
       
  Shareholders' Equity
4,586
 
4,737
 
 
 
  Total Liabilities and Shareholders' Equity
$
10,120
   
$
9,472
 
 
(a)
The information in this column was derived from the Company’s audited consolidated balance sheet as of June 29, 2007.




 

Seagate Technology
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(Unaudited)
       
For the Three Months Ended
 
For the Year
Ended
 
June 27,
2008
June 29,
2007
June 27,
2008
June 29,
2007
Revenue
$
2,899
$
2,744
$
12,708
$
11,360
               
Cost of revenue
2,208
2,150
9,503
9,175
Product development
270
221
1,028
904
Marketing and administrative
175
143
659
589
Amortization of intangibles 13 13 54 49
Restructuring and other, net
36
29
88
29
  Total operating expenses
2,702
 
2,556
 
11,332
 
10,746
 
   
       
Income from operations
197
188
1,376
614
       
Interest income
6
14
57
73
Interest expense (30)   (33)   (126)   (141)  
Other, net 9   2   22  
15
 
  Other expense, net (15)   (17)   (47)   (53)  
   
       
Income before income taxes
182
171
1,329
561
Provision for (benefit from) income taxes
22
(370)
67 (352)
 
Net income
$
160
$
541
$
1,262
$
913
 
Net income per share:  
  Basic
$
0.33
$
1.00
$
2.46
$
1.64
  Diluted
0.32
   
0.96
 
2.36
 
1.56
 
Number of shares used in per share calculations:  
  Basic
484
   
539
 
512
 
558
 
  Diluted
500
564
538
587
           



 

Seagate Technology
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
For the Year Ended
null


June 27,
2008
June 29,
2007
Operating Activities        
Net income
$
1,262
   
$
913
 
Adjustments to reconcile net income to net cash from operating activities:            
Depreciation and amortization
844
 
851
 
  Stock-based compensation 113   128  
  Deferred income taxes 10   (365)  
  Allowance for doubtful accounts receivable, net of recoveries (3)   40  
  Redemption charges on 8% Senior Notes due 2009   19  
  In-process research and development 4   4  
Other non-cash operating activities, net
(16)
 
36
 
Changes in operating assets and liabilities:    
    Current assets and liabilities  
133
     
(781)
 
  Non-current assets and liabilities  
191
     
98
 
   
 
  Net cash provided by operating activities
2,538
 
943
 
   
 
 
Investing Activities        
Acquisition of property, equipment and leasehold improvements  
(930)
     
(906)
 
Proceeds from sale of fixed assets 29   55  
Purchases of short-term investments
(486)
 
(322)
 
Maturities and sales of short-term investments  
460
     
997
 
Acquisitions, net of cash acquired   (78)       (178)  
Other investing activities, net
14
 
(48)
 
   
 
Net cash used in investing activities
(991)
 
(402)
 
   
 
               
Financing Activities        
Net proceeds from issuance of long-term debt         1,477  
Repayment of debt   (34)       (405)  
Redemption premium on 8% Senior Notes due 2009         (16)  
Proceeds from exercise of employee stock options and employee stock purchase plan   178       219  
Dividends to shareholders
(216)
 
(212)
 
Repurchases of common shares   (1,479)       (1,526)  
Other financing activities, net   6        
   
 
Net cash used in financing activities
(1,545)
 
(463)
 
   
 
               
Increase in cash and cash equivalents
2
 
78
 
Cash and cash equivalents at the beginning of the year
988
 
910
 
 
 
Cash and cash equivalents at the end of the year
$
990
 
$
988
 





Use of non-GAAP financial information

Our results of operations have undergone significant change in the past two years, most significantly in connection with our acquisition of Maxtor. To help the readers of our condensed consolidated financial statements prepared on a GAAP basis better understand our past financial performance and our expectations of our future results, we supplementally disclose, after making certain non-GAAP adjustments, non-GAAP net income and non-GAAP diluted net income per share. We also provide forecasts of these non-GAAP financial measures. A reconciliation of the adjustments to GAAP net income and diluted net income per share for the quarter and annual periods are presented in the tables below. In addition, an explanation of the ways in which our board of directors and management use these non-GAAP financial measures to evaluate the business, the substance behind our management’s decision to use these non-GAAP financial measures, the material limitations associated with the use of these non-GAAP financial measures, the manner in which Seagate management compensates for those limitations, and the substantive reasons why we believe that these non-GAAP financial measures provide useful information to investors is included under the caption “Use of Non-GAAP Financial Measures” in the Form 8-K furnished today with the U.S. Securities and Exchange Commission. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for net income or diluted net income per share prepared in accordance with GAAP. You should not compare our non-GAAP net income or non-GAAP diluted net income per share results with those of other companies, as the adjustments made to our GAAP results are unique to Seagate.




                             
Seagate Technology
Adjustments to GAAP Net Income and Diluted Net Income Per Share
(In millions, except per share data)
(Unaudited)
                             
              For the Three
Months Ended
June 27, 2008
line
  For theYear
Ended June 27, 2008
line
 
                         
  GAAP net income       $ 160     $ 1,262    
  Non-GAAP adjustments:                      
    Acquisition related adjustments:                      
      - Amortization of purchased intangible assets   A     20       94    
      - Write-off of in-process research and development   B           4    
      - Stock-based compensation   C     3       15    
      - Gain on the sale of certain assets   D           (19)    
    Adjustments for taxes   E              
                   
  Non-GAAP net income         183       1,356    
                         
  Diluted net income per share:                      
    GAAP       $ 0.32       2.36    
                         
    Non-GAAP       $ 0.37     $ 2.54    
                         
  Shares used in diluted net income per share calculation:         500       538    
                         
                             
A   For the three months and year ended June 27, 2008, amortization of purchased intangible assets acquired in acquisitions was allocated as follows:
                             
              For the Three
Months Ended
June 27, 2008
line
  For the Year
Ended June 27,
2008
line
 
                         
  Cost of revenue       $ 7     $ 40    
  Amortization of intangibles         13       54    
                         
    Total amortization of purchased intangible assets       $ 20     $ 94    
                     
                             
B   To exclude the write-off of in-process research and development related to the MetaLINCS acquisition (allocated to Product development)
                             
C   For the three months and year ended June 27, 2008, stock-based compensation expense related to the Maxtor acquisition was allocated as follows
                             
              For the Three
Months Ended
June 27, 2008
line
  For the Year
Ended June 27,
2008
line
 
                         
  Cost of revenue       $ 1     $ 2    
  Product development         2       10    
  Marketing and administrative               3    
                         
    Total stock-based compensation expense       $ 3     $ 15    
                         
                             
D   To exclude the gain on the sale of certain assets (allocated to Other income, net)
                             
E   To exclude the tax effects, where applicable, of adjustments to GAAP net income